Industrial Policy Resolution 1985 and 1986 - Indian Economy Notes
The industrial policy resolution 1985 and 1986 was brought in by the government to diversify and open the Indian market. Both these policies relaxed foreign investment rules and made changes to the MRTP Act by relaxing the process of industrial licensing. This article discusses the industrial policy resolution of 1985 and 1986 which is important for aspirants preparing for the UPSC examination.
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Industrial Policy Resolution 1985 and 1986: Highlights
- Restrictions were removed from foreign investments with more industrial areas being opened for their entry.
- The major method of foreign investment remained technology transfer, however, the equity holding of the MNCs in the Indian subsidiaries could be up to 49 per cent with the Indian partner holding the rest of the 51 percent shares.
- The limit for MRTP has been revised upward to Rs 100 crore so as to promote bigger companies in the country.
- The process of industrial licensing was further simplified and compulsory licensing now remained for 64 industries only.
- The increased focus was given to the sunrise industries such as telecommunication, computerisation and electronics.
- In the public sector undertaking modernisation and profitability, aspects were more focused upon. Industries that were based on imported raw materials got a boost.
- Under the Foreign Exchange Regulation Act (FERA), various relaxations based on the use of foreign exchange were permitted so that essential technology could be assimilated into Indian industries and international standards could be achieved.
- Technology infusion was brought into the agriculture sector.
| Other Relevant Links | |
|---|---|
| Industrial Policy Resolution, 1948 | Industrial Policy Resolution, 1980 |
| Industrial Policy Resolution, 1956 | New Industrial Policy, 1991 |
Industrial Policy Resolution 1985 and 1986: Significance
- Without undertaking significant economic reforms these industrial policy resolutions were aimed at liberalizing the economy.
- These reforms were such that they helped the government of the time to pursue such economic reforms that were undertaken post-1991.
- This set of policy measures was more dependent on foreign capital with a significant part being the costlier one.
- Various external events such as the Gulf War, 1990–91 crisis led to a difficult situation in the country due to which it became difficult to meet the industrial performance, and hence it became tough for India to service the external borrowings.
- The balance of payment crisis of 1991 put the economy in a financial crunch which made the country go for a new way of economic management in the future.
Conclusion
These industrial policy resolutions defined the role of the government and the businesses. It enabled the government to remove restrictions that could facilitate the entry of foreign firms and the inflow of investments. However, due to various events such as the gulf war, economic crisis, etc, the result intended from these reforms could not be achieved.
FAQs
Question: What was the Industrial Policy Resolution of 1985?
Answer: The Industrial Policy Resolution of 1985 was introduced to guide India's industrial development post the economic challenges of the early 1980s. Key focuses included liberalization, encouraging private sector participation, technological upgradation, and promoting small-scale industries.
Question: What were the major objectives of the 1985 Industrial Policy?
Answer: The objectives were:
- Reducing government control: Relaxing industrial licensing requirements.
- Encouraging competition: Fostering competition to improve efficiency.
- Promoting SMEs: Supporting small and medium-scale industries.
- Technological improvements: Modernizing industries to enhance productivity.
Question: What changes did the 1986 Industrial Policy introduce?
Answer: The 1986 policy refined the 1985 policy with additional focuses on:
- Privatization: Encouraging the private sector’s role in public enterprises.
- Foreign investment: Promoting FDI for competitiveness and technology transfer.
- Regional development: Encouraging industrial growth in underdeveloped areas.
- Environmental sustainability: Advocating for eco-friendly industrial development.
Question: How did the 1985 and 1986 Industrial Policies affect the Indian economy?
Answer: These policies significantly influenced the economy by:
- Liberalization: Initiating reduced state controls and increased private participation.
- Technological advancement: Encouraging modern technology adoption in industries.
- Private sector growth: Increasing the private sector's role in various industries.
- Foundation for FDI: Setting the groundwork for foreign direct investments.
Question: What were the limitations of the 1985 and 1986 Industrial Policies?
Answer: Limitations included:
- Slow reforms: Limited immediate impact due to gradual implementation.
- Infrastructure gaps: Insufficient focus on resolving infrastructure bottlenecks.
- Over-reliance on private sector: At times neglecting the public sector’s role.
MCQs
- Which of the following was a key feature of the 1985 Industrial Policy?
A) Nationalization of key industries
B) Focus on technological upgradation
C) Promotion of centralized planning
D) Restriction on foreign direct investment (FDI)
Answer: (B) See the Explanation
The policy emphasized technological upgradation to enhance productivity in industries.
- What did the 1986 Industrial Policy encourage regarding the private sector?
A) Encouraged greater state control
B) Encouraged the privatization of public sector enterprises
C) Discouraged foreign investment
D) Restricted private investment in key industries
Answer: (B) See the Explanation
The 1986 policy encouraged privatization, liberalizing the investment climate for the private sector.
- Which sector did the 1985 and 1986 Industrial Policies focus on promoting?
A) Large-scale industries only
B) Small and medium-scale industries
C) Service sector
D) Agricultural sector
Answer: (B) See the Explanation
Both policies emphasized the growth of SMEs for employment and economic growth.
- Which of the following was a feature of the 1986 Industrial Policy related to foreign investment?
A) Complete ban on foreign investment
B) Encouraged foreign direct investment (FDI)
C) Restriction on foreign technology
D) Nationalization of foreign companies
Answer: (B) See the Explanation
The policy promoted FDI to bring in capital and advanced technology.
- What was one of the major drawbacks of the 1985 and 1986 Industrial Policies?
A) Over-reliance on public sector enterprises
B) Slow pace of reforms and limited implementation
C) Excessive foreign control
D) Lack of focus on technological advancements
Answer: (B) See the Explanation
The slow implementation limited the immediate effects of these policies on industrial growth.
GS Mains Questions and Model Answer
Q1: Discuss the major provisions of the 1985 Industrial Policy and assess its impact on the Indian economy.
Answer: The 1985 policy focused on liberalization, technological advancements, and promoting SMEs. Its impact included:
- Liberalization: Reduced licensing requirements and encouraged private investments.
- Modernization: Introduced modern technology to improve productivity.
- SME focus: Fostered employment and grassroots economic growth.
Although its short-term impact was limited, the policy laid the foundation for the 1991 reforms.
Q2: How did the 1986 Industrial Policy build upon the 1985 policy, and what were its contributions to India's industrial growth?
Answer: The 1986 policy refined the 1985 framework by:
- Privatization: Increased private sector involvement in industries.
- Foreign investment: Promoted FDI to enhance competitiveness.
- Regional growth: Focused on industrial dispersal to underdeveloped areas.
These measures boosted industrial output and set the stage for greater economic integration.
Q3: Analyze the strengths and weaknesses of the 1985 and 1986 Industrial Policies in promoting sustainable industrial growth.
Answer: The strengths were:
- Liberalization: Encouraged private sector participation.
- Modernization: Focused on technology adoption.
- SME promotion: Supported employment generation.
Weaknesses included:
- Slow reforms: Gradual implementation delayed immediate impacts.
- Infrastructure gaps: Hindrances to regional development.
- Limited scope: Reforms needed more deregulation and investment incentives.
Previous Year Questions on Industrial Policy Resolution
1. UPSC CSE 2021
Question: Discuss the key features and impact of the 1985 Industrial Policy on the Indian economy.
Answer: This question evaluates the policy's role in liberalization, technological advancement, and private sector promotion.
2. UPSC CSE 2020
Question: How did the 1986 Industrial Policy contribute to the industrial development and growth of foreign investment in India?
Answer: This question focuses on how the policy encouraged FDI, privatization, and regional industrial growth.
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